Many people make Section 83(b) elections, named for the subsection of the Internal Revenue Code of 1986 that authorizes them. Simply put, a Section 83(b) election allows taxpayers to include in their gross income the fair value of property that is not vested or subject to forfeiture (such as stock options, profits interests, and other forms of equity compensation). For some taxpayers, this can be a valuable tool that enables them to be taxed on property that will appreciate over time but that currently has a relatively low value.
This is not a post about when you should make a Section 83(b) election, though.
This is a post about how you make a Section 83(b) election.
Although many people make these Section 83(b) elections, you could not find a form for this election on the IRS website. The IRS publishes hundreds of forms, brochures, and other documents to help taxpayers with the administrative burden of tax preparation. But, for years, a Section 83(b) election was a do-it-yourself adventure. We would prepare elections, and clients (or their employees) would wonder, “Is this a legitimate document?” The only guidance from the IRS was a 2012 Revenue Procedure.
The IRS has recently released Form 15620 to streamline the Section 83(b) election process. This form provides certainty for tax document preparers and taxpayers when they are providing this information to the IRS to ensure they are properly filing this election.
Again, this is not a post about when or whether anyone should make a Section 83(b) election. A Section 83(b) election is a serious matter and practically impossible to undo. But, we now have clearer guidance on how to make one.
